Tuesday, October 14, 2008

EASY NOW--THE FAT LADY HAS NOT YET SUNG

A Market Rebound for the Record Books 11% Surge Reflects Growing Confidence in Global Crisis Response
By Renae Merle Washington Post Staff Writer Tuesday, October 14, 2008; D01
Wall Street roared back yesterday, rebounding from last week's dismal performance with its largest rally in 70 years and revealing renewed confidence in U.S. and global efforts to combat the financial crisis.
After finishing the worst week in its more than 100-year history, the Dow Jones industrial average blew past several milestones, closing up 11.08 percent, or 936.42 points, at 9387.61. It was the fifth-largest rally in history on a percentage basis and the largest since the Great Depression. It was also, by far, the Dow's largest point gain, and it snapped an eight-day losing streak fueled by deepening concerns of a global recession. Most of last week's historic 18 percent loss was wiped out.
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Ah, yes. The stock market is, if nothing else, a place of raging exuberance or darkest desperation. It plunges. It soars. It jumps at its own shadow (or the shadows of perfect strangers) and claims to be a perfect self-correcting institution, all the time worrying us to death because it is utterly and everlastingly irrational.

It is the stuff of dreams. Or nightmares.
So, it jollied itself into a historic rise, fueled by nothing other than various governments promising various degrees of help. These same governments that fanned (or at least failed to extinguish) the flames of investor passion, now have stuck their tongues deep in the throat of Bailout Betty. Betty is hot, she's flush with the promise of a good time, but she's the fat lady and she has not yet sung.
Reason with me for a moment. Paulson has slipped the promise of $1 trillion into Betty's lingerie. It's a nice gesture, but if he'd looked more deeply into her eyes, he'd have noticed she's been playing the field for too long to be true to anyone. A single, solitary, lonely and magically conjured trillion is up against
  • $60 trillion in credit default swaps worth close to zero
  • 30 million auto loans secured by cars no longer worth what has been borrowed against them
  • credit-card default, the next shoe to drop financially, as holders lose jobs, lose homes and increasingly find themselves over their heads in debt.
  • toxic sub-prime mortgage defaults that are still out there somewhere--no one actually knows where or what the losses may be, but they are distributed worldwide.
  • a breakdown of the basic machinery of markets, which is trust. There is no trust left among the institutions Paulson relies upon to once again trust one another.
In the face of these unchanged circumstances, the DOW took it upon itself to rise nearly a thousand points--the biggest single-day increase in history. That's not recovery, that's panic.